Reduced forward gains; Gilts fall on policy confusion: market recap

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(Bloomberg) – U.S. futures pared gains and European stocks extended their decline on Wednesday after producer price data fueled tightening bets from the Federal Reserve. UK markets were again rocked by political concerns.

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The 30-year gilt yield rose above 5% after the Bank of England confirmed its plan to end emergency bond purchases, but the pound rebounded above $1.10. The BOE also signaled that interest rates are likely to rise sharply in November and warned that some UK households could face as much pressure to repay debt as before the 2008 financial crisis.

“The Bank of England is a test of how hawkish central banks can be without undermining financial stability,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets.

Treasury yields and the dollar were little changed, with data showing prices paid to U.S. producers rose in September more than expected ahead of a key gauge of inflation expected on Thursday that is expected to return to a four-decade high. U.S. investors are also looking to corporate earnings for clues about Federal Reserve policy.

Kristina Hooper, chief global market strategist for Invesco, said in a note that while the global economy is slowing after rate hikes, there has yet to be a significant drop in inflation. “This is an extraordinary monetary policy tightening environment and we are waiting to see if anything breaks globally,” she said. “The UK has come closer.”

Among notable premarket moves, Moderna Inc. rose after Merck & Co. exercised its option to jointly develop and market a cancer vaccine. Major US technology, internet and semiconductor stocks rebounded.

“While futures positioning is now slightly less extreme, it is still a very bearish setup in what is seen as a binary market event tomorrow,” said Carl Dooley, Head of EMEA Trading. at Cowen in London. It makes it “natural to see bear blankets, with the remaining bulls having another roll of the dice.”

In Europe, Credit Suisse Group AG collapsed after a report that US authorities are investigating whether the bank helped clients conceal assets.

Elsewhere, crude fluctuated. OPEC has cut its forecast for how much crude it will have to pump this quarter, while Russian President Vladimir Putin has said all energy infrastructure around the world is at risk after explosions at Nord Stream pipelines.

NATO Secretary General Jens Stoltenberg has urged alliance members to step up deliveries of air defense systems to Ukraine, condemning Russian strikes. In China, Shanghai is quietly closing schools and a host of other places as authorities try to contain an outbreak that has hit the financial hub.

Key events this week:

  • Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock Inc., Delta Air Lines Inc., UnitedHealth Group Inc., US Bancorp, Wells Fargo & Co.

  • FOMC Minutes for September Meeting, Wednesday

  • US PPI, mortgage applications, Wednesday

  • OPEC’s monthly oil market report, Wednesday

  • The Fed’s Michelle Bowman and Neel Kashkari talk

  • ECB’s Christine Lagarde speaks

  • US CPI, first jobless claims, Thursday

  • G-20 finance ministers and central bankers meet on Thursday

  • China CPI, PPI, trade, Friday

  • U.S. Retail Sales, Business Inventories, University of Michigan Consumer Sentiment, Friday

  • BOE emergency bond buying set to end on Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures rose 0.4% at 8:45 a.m. PT

  • Nasdaq 100 futures rose 0.5%

  • Dow Jones Industrial Average futures rose 0.3%

  • The Stoxx Europe 600 fell 0.4%

  • The MSCI World index fell 1%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $0.9704

  • The British pound rose 0.8% to $1.1052

  • The Japanese yen fell 0.6% to 146.73 per dollar

Cryptocurrencies

  • Bitcoin rose 0.5% to $19,119.64

  • Ether rose 1.4% to $1,299.83

Obligations

  • The yield on 10-year Treasury bills rose one basis point to 3.96%

  • Germany‘s 10-year yield rose nine basis points to 2.39%

  • The UK 10-year yield rose 12 basis points to 4.56%

Goods

  • West Texas Intermediate crude fell 0.6% to $88.84 a barrel

  • Gold futures fell 0.7% to $1,673.80 an ounce

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